Tax Planning Series 4: Deductions under Income Tax Act, 1961 (Applicable for AY 2017-18)-Part 2

Deductions/allowances under Salary/House Property/PGBP/Income from other sources:

DEDUCTIONS/ALLOWANCES

Section
 Nature of deduction
Who can claim
Relevant Rule
(1)
(2)
(3)
(4)
Against ‘salaries’
16(ii)
Entertainment allowance [actual or at the rate of 1/5th of salary, whichever is less] [limited to Rs. 5,000]
Government employees
16(iii)
Employment tax
Salaried assessees
Against ‘income from house properties’
23(1),first proviso
Taxes levied by local authority and borne by owner if paid in relevant previous year
All assessees
24(a)
Standard deduction [30% of the annual value (gross annual value less municipal taxes)]
All assessees
24(b)
Interest on borrowed capital (Rs. 30,000/Rs. 2,00,000, subject to specified conditions)
All assessees
25B2
Standard deduction of 30 per cent of arrears of rent received subsequently
All assessees realizing arrears of rent
Against ‘profits and gains of business or profession
A. Deductible items
30
Rent, rates, taxes, repairs (excluding capital expenditure) and insurance for premises
All assessees
31
Repairs (excluding capital expenditure) and insurance of machinery, plant and furniture
All assessees
32
Depreciation on buildings, machinery, plant or furniture, know-how, patents, copyrights, trade marks, licences, franchises, or any other business or commercial rights of similar nature, being intangible assets – Prescribed percentage on WDV in the case of any block of assets
All assessees
5, 5A
32AC
Investment in new plant and machinery (subject to certain conditions and limits)
A company engaged in manufacture or production of any article or thing
32AD
Deduction of 15% of actual cost of new asset acquired and installed in notified backward areas in the State of Andhra Pradesh or the State of Telengana or State of Bihar or State of West Bengal (subject to certain conditions) (upto assessment year 2020-21).
All assessees
33A
Development allowance – 50 per cent of actual cost of planting (subject to certain conditions and limits) (planting should have been completed before 1-4-1990)
Assessee engaged in business of growing and manufacturing tea in India
33AB
Tea/Coffee/Rubber Development Account – Amount deposited in account with National Bank (Special Account) or in Deposit Account of Tea Board, Coffee Board or Rubber Board in accordance with approved scheme or 40% of profits of business, whichever is less (subject to certain conditions)
Assessees engaged in business of growing and manufacturing tea/Coffee/Rubber in India
33ABA
Amount deposited in Special Account with SBI/Site Restoration Account or 20 per cent of profits, whichever is less (subject to certain conditions)
Assessee carrying on business of prospecting for, or extraction or production of, petroleum or natural gas or both in India
5AD
351
Expenditure on scientific research for certain specific purposes (subject to certain conditions)
All assessees
5C, 5D, 5E, 5F & 6
35A
Expenditure incurred before 1-4-1998 on acquisition of patent rights or copyrights [equal to appropriate fraction of expenditure on acquisition to be deducted in fourteen equal annual instalments beginning with previous year in which such expenditure has been incurred] (subject to certain conditions)
All assessees
35AB2
Lump sum payment made in any previous year relevant to assessment year commencing on or before 1-4-1998, for acquisition of technical know-how [consideration for acquisition to be deducted in six equal annual instalments (3 equal annual instalments where know-how is developed in certain laboratories, universities and institutions)] (subject to certain conditions)
All assessees
35ABB
Expenditure incurred for obtaining licence to operate telecommunication services either before commencement of such business or thereafter at any time during any previous year
All assessees
35AC
Expenditure by way of payment of any sum to a public sector company/local authority/approved association or institution for carrying out any eligible scheme or project (subject to certain conditions)
All assessees
11F to 11-O
35AD
Capital expenditure incurred, wholly and exclusively, for the purpose of any specified business [setting up and operating a cold chain facility; setting up and operating a warehousing facility for storage of agricultural produce; laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network; building and operating, anywhere in India, a hotel of two-star or above category as classified by the Central Government; building and operating, anywhere in India, a hospital with at least one hundred beds for patients; developing and building a notified housing project under a scheme for slum redevelopment or rehabilitation framed by the Government, as the case may be, in accordance with prescribed guidelines; developing and building a notified housing project under a scheme for affordable housing framed by the Government, as the case may be, in accordance with prescribed guidelines; production of fertilizer in India; setting up and operating an inland container depot or a container freight station which is approved/notified under the Customs Act, 1962; bee-keeping and production of honey and beeswax; setting up and operating a warehousing facility for storage of sugar, business of laying and operating a slurry pipeline for the transportation of iron ore and the business of setting up and operating a notified semi-conductor wafer fabrication manufacturing unit, carried on by the assessee during the previous year in which such expenditure is incurred (subject to certain conditions)
All assessees
11-OA 11-OB
35CCA
Payment to associations/institutions for carrying out rural development programmes (subject to certain conditions)
All assessees
35CCB
Expenditure incurred before 1-4-2002 by way of payment to approved associations/institutions for carrying out approved programmes of conservation of natural resources or afforestation (subject to certain conditions)
All assessees
35CCC
One and a half times of expenditure on notified agricultural extension project (subject to certain conditions)
All assessees
6AAD, 6AAE
35CCD
One and a half times of expenditure on notified skill development project (subject to certain conditions)
A company
6AAF to 6AAH
35D
Amortisation of certain preliminary expenses [deductible in 5 equal annual instalments] (subject to certain conditions)
Indian companies and resident non-corporate assessees
6AB
35DD
Amortisation of expenditure incurred after 31-3-1999 in case of amalgamation or demerger in the hands of an Indian company (one-fifth of such expenditure for 5 successive previous years) (subject to certain conditions)
Indian Company
35DDA
Amortisation of expenditure incurred under voluntary retirement scheme in 5 equal annual instalments starting with the year when the expenditure is incurred
All assessees
35E
Expenditure on prospecting, etc., for certain minerals [deductible in ten equal annual instalments] (subject to certain conditions)
Indian companies and resident non-corporate assessees engaged in prospecting, etc., for minerals
6AB
36(1)(i)
Insurance premium covering risk of damage or destruction of stocks/stores
All assessees
36(1)(ia)
Insurance premium covering life of cattle owned by a member of co-operative society engaged in supplying milk to federal milk co-operative society
Federal milk co-operative societies
36(1)(ib)
Medical insurance premium paid by any mode other than cash, to insure employee’s health under (a) scheme framed by GIC of India and approved by Central Government; or (b) scheme framed by any other insurer and approved by IRDA
All assessees as employers
36(1)(ii)
Bonus or commission paid to em-ployees
All assessees
36(1)(iii)
Interest on borrowed capital
All assessees
36(1)(iiia)
Pro rata amount of discount on a zero coupon bond based on life of such bond and calculated in prescribed manner
All assessees
8B, 8C
36(1)(iv)
Contributions to recognised provident fund and approved superannuation fund [subject to certain limits and conditions]
All assessees as em-ployers
75, 87, 88
36(1)(iva)
Any sum paid by assessee-employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee to the extent it does not exceed 10 per cent of the employee’s salary in the previous year.
All assessees as employers
36(1)(v)
Contributions to approved gratuity fund [subject to certain limits and conditions]
All assessees as em-ployers
103, 104
36(1)(va)
Contributions to any provident fund or superannuation fund or any fund set up under Employees’ State Insurance Act, 1948 or any other fund for welfare of such employees, received from employees if the same are credited to the employee’s account in relevant fund or funds before due date
All assessees as employers
36(1)(vi)
Allowance in respect of animals which have died or become permanently useless [subject to certain conditions]
All assessees
36(1)(vii)
Bad debts which have been written off as irrecoverable [subject to limitation in the case of banks and financial institutions]
All assessees
36(1)(viia)
Provision for bad and doubtful debts
up to 7½ per cent of total income before making any deduction under this clause and Chapter VI-A, and up to 10 per cent of aggregate average advances made by its rural branches
Certain scheduled banks, non-scheduled banks (but other than foreign banks) and co-operative bank (other than primary agricultural credit society or primary co-operative agricultural and rural development bank)
6ABA
up to 5 per cent (10% in case of Public Financial Institutions, State Financial Corporations and State Industrial Investment Corporations in any of the two consecutive assessment years 2003-04 and 2004-05 – subject to certain conditions) of total income before making any deduction under this clause and Chapter VI-A
Foreign banks/Public financial institutions/State financial corporations/State industrial investment corporations and NBFCs (with effect from assessment year 2017-18)
36(1)(viii)
Amounts transferred to special reserve [subject to certain conditions and maxi-mum of 20 per cent of profits derived from eligible business]
Specified entities, namely, financial corporations/financial corporation which is a public sector company/banking company/co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank/housing finance company/any other financial corporation including a public company
6ABAA
36(1)(ix)
Expenditure for promoting family planning amongst employees (deductible in 5 equal annual instalments in case of capital expenditure)
Companies
36(1)(xi)
Expenditure incurred wholly and exclusively by the assessee on or after the 1st April, 1999 but before the 1st April, 2000 in respect of a non-Y2K compliant system, owned by the assessee and used for the purposes of his business or profession, so as to make such system Y2K compliant computer system
All assessees
6ABB
36(1)(xii)
Any expenditure (not being in the nature of capital expenditure) incurred by a notified corporation or body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act, for the objects and purposes authorised by the Act under which such corporation or body corporate was constituted or established
Notified corporation or body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act
36(1)(xiii)
Any banking cash transaction tax paid during the previous year on taxable banking transaction entered into by the assessee
All assessees
36(1)(xiv)
Contribution to notified credit guarantee trust fund for small industries
Public financial institution
36(1)(xv)
Securities Transaction Tax paid if corresponding income is included as income under the head ‘Profits and gains of business or profession’
All assessees
36(1)(xvi)
Amount equal to commodities transaction tax paid by an assessee in respect of taxable commodities transactions entered into in the course of his business during the previous year, if the income arising from such transactions is included in the income computed under the head “Profits and gains of business or profession”
All assessees
36(1)(xvii)
Expenditure incurred by a co-operative society (engaged in the business of manufacture of sugar) for purchase of sugarcane at a price which is equal to (or less than) the price fixed or approved by the Government
Co-operative society
37(1)
Any other expenditure [not being personal or capital expenditure and expenditure mentioned in sections 30 to 36] laid out wholly and exclusively for purposes of business or profession
All assessees
B. Non-deductible items
37(2B)
Advertisement in souvenir, brochure, tract, pamphlet, etc., of political party
All assessees
40(a)(i)
Interest, royalty, fees for technical services or other chargeable sum payable outside India, or in India to a non-resident or foreign company, on which tax has not been paid/deducted during the previous year or in the subsequent year within time prescribed under section 200(1). Where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid
All assessees
40(a)(ia)
Thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139.
However, where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
All assessees
40(a)(ib)
Any consideration paid or payable to a non-resident for a specified service on which equalisation levy is deductible under the provisions of Chapter VIII of the Finance Act, 2016, and such levy has not been deducted, or after deduction, has not been paid on or before the due date specified in section 139(1) (subject to certain conditions)
All assessees
40(a)(ic)
Any sum paid on account of fringe benefit tax
All assessees
40(a)(ii)
Rate or tax levied on the profits or gains of any business or profession
All assessees
40(a)(iia)
Wealth-tax paid
All assessees
40(a)(iib)
Amount paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on, or any amount which is appropriated, whether directly or indirectly, from a State Government undertaking by the State Government
State Govt. undertakings
40(a)(iii)
Salaries payable outside India, or in India to a non-resident, on which tax has not been paid/deducted at source
All assessees as employers
40(a)(iv)
Payments to provident fund/other funds for employees’ benefit for which no effective arrangements are made to secure that tax is deducted at source on payments made from such funds which are chargeable to tax as ‘salaries’
All assessees as employers
40(a)(v)
Tax actually paid by an employer referred to in section 10(10CC)
All assessees as employers
40(b)
Interest, salary, bonus, commission or remuneration paid to partners (subject to certain conditions and limits)
Firms
40(ba)
Interest, salary, bonus, commission or remuneration paid to members (subject to certain conditions and limits)
Association of persons or body of individuals (except a company or a co-operative society, society registered under Societies Registration Act, etc.)
40A(2)
Expenditure involving payment to re-lative/director/partner/substantially interested person, etc., which, in the opinion of the Assessing Officer, is excessive or unreasonable
All assessees
40A(3)
100% of payments exceeding Rs. 20,000 (Rs. 35,000 in case of payment made for plying, hiring or leasing goods carriages) made to a person in a day otherwise than by account payee cheque/bank draft (subject to certain conditions)
All assessees
6DD
40A(7)
Any provision for payment of gratuity to employees, other than a provision made for purposes of contribution to approved gratuity fund or for payment of gratuity that has become payable during the year (subject to specified conditions)
All assessees as employers
40A(9)
Any sum paid for setting up or formation of, or as contribution to, any fund, trust, company, AOP, BOI, Society or other institution, other than recognised provident fund/approved superannuation fund/pension scheme referred to in section 80CCD/approved gratuity fund
All assessees as employers
C. Other deductible items
42(1)
In case of mineral oil concerns allowances specified in agreement entered into by Central Government with any person (subject to certain conditions and terms of agreement)
Assessees engaged in prospecting for or extraction or production of mineral oils
42(2)
In case of mineral oil concerns expenditure incurred remaining unallowed as reduced by proceeds of transfer
Assessee whose business consists of prospecting for or extraction or production of petroleum and natural gas and who transfers any interest in such business
43B
Any sum which is actually paid, relating to (i) tax/duty/cess/fee levied under any law, (ii) contribution to provident fund/superannuation fund/gratuity fund/any fund for employees’ welfare, (iii) bonus/commission to employees, (iv) interest on loan/borrowing from any public financial institution, State Financial Corporation or State Industrial Investment Corporation/interest payments to scheduled banks/Co-operative banks on loans or advances, and (v) sum payable by employers by way of leave encashment to employees.Deduction will not be allowed in year in which liability to pay is incurred unless actual payment is made in that year or before the due date of furnishing of return of income for that year
All assessees
44A
Expenditure in excess of subscription, etc., received from members (subject to certain conditions and limits)
Trade, professional or similar association
44C
Head office expenditure (subject to certain conditions and limits)
Non-resident
Against ‘capital gains’
48(i)
Expenditure incurred wholly and exclusively in connection with transfer of capital asset
All assessees
48(ii)
Cost of acquisition of capital asset and of any improvement thereto (indexed cost of acquisition and indexed cost of improvement, in case of long-term capi-tal assets)
All assessees
54
Long-term capital gains on sale of resi-dential house and land appurtenant thereto invested in purchase/construction of one residential house in India (subject to certain conditions and limits)
Individual/HUF
54B
Capital gains on transfer of land used for agricultural purposes, by an individual or his parents or a HUF, invested in other land for agricultural purposes (subject to certain conditions and limits)
Individual/HUF
54D
Capital gains on compulsory acquisition of land or building forming part of an industrial undertaking invested in purchase/construction of other land/building for shifting/re-establishing said undertaking or setting up new industrial undertaking (subject to certain conditions and limits)
Any assessee
54EA
Net consideration on transfer of long-term capital asset made before 1-4-2000 invested in specified bonds, debentures, shares of a public comp-any or units of notified mutual funds (subject to certain conditions and limits)
Any assessee
54EB
Long-term capital gains on transfer of any long-term capital asset made be-fore 1-4-2000 invested in specified long-term assets (subject to certain conditions and limits)
Any assessee
54EC
Long-term capital gains invested in long-term specified asset (bond redeemable after 3 years) (maximum investment is Rs. 50 lakhs : which includes total amount invested during financial year in which original asset is transferred and in subsequent financial year) issued by National Highways Authority of India; or by the Rural Electrification Corporation Limited (subject to certain conditions and limits)
Any assessee
54ED
Long-term capital gains on transfer before 1-4-2006 of certain listed securities or units invested in equity shares forming part of an eligible issue of capital (subject to certain conditions and limits)
Any assessee
54EE1
Long-term capital gains invested in long-term notified specified assets to finance start-ups
Any assessee
54F
Net consideration on transfer of long-term capital asset other than residential house invested in one residential house in India (subject to certain conditions and limits)
Individual/HUF
54G
Capital gain on transfer of machinery, plant, land or building used for the purposes of the business of an industrial undertaking situate in an urban area (transfer being effected for shifting the undertaking to a non-urban area) invested in new machinery, plant, building or land, in the said non-urban area, expenses on shifting, etc. (subject to certain conditions and limits)
Any assessee
54GA
Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone (subject to certain conditions and limits)
All assessees
54GB1
Exemption in respect of capital gain arising from the transfer of a long-term capital asset, being a residential property (a house or a plot of land), owned by the eligible assessee, and such assessee before the due date of furnishing of return of income under sub-section (1) of section 139 utilises the net consideration for subscription in the equity shares of an eligible company and such company has, within one year from the date of subscription in equity shares by the assessee, utilised this amount for purchase of specified new asset (subject to certain conditions and limits).
Individual/HUF
Against ‘income from other sources’
A. Deductible items
57(i)
Any reasonable sum paid by way of commission or remuneration for purpose of realising dividend (other than dividends referred to in section 115-O)
All assesses
57(i)
Any reasonable sum paid by way of commission or remuneration for the purpose of realising interest on securities
All assesses
57(ia)
Contributions to any provident fund or superannuation fund or any fund set up under Employees’ State Insurance Act, 1948 or any other fund for welfare of employees, if the same are credited to employees’ accounts in relevant funds before due date
All assesses
57(ii)
Repairs, insurance, and depreciation of building, plant and machinery and furniture
Assessees engaged in business of letting out of machinery, plant and furniture and buildings on hire
57(iia)
In case of family pension, 331/3 per cent of such pension or Rs. 15,000, whichever is less
Assessees in receipt of family pension on death of employee being member of assessee’s family
57(iii)
Any other expenditure (not being capital expenditure) expended wholly and exclusively for earning such income
All assesses
57(iv)
In case of interest received on compensation or on enhanced compensation referred to in section 145A(2), a deduction of 50 per cent of such income (subject to certain conditions)
All assessees
B. Non-deductible items
58(1)(a)(i)
Personal expenses
All assessees
58(1)(a)(ii)
Interest chargeable to tax which is payable outside India on which tax has not been paid or deducted at source
All assessees
58(1)(a)(iii)
‘Salaries’ payable outside India on which no tax is paid or deducted at source
All assessees
58(1A)
Wealth-tax
All assessees
58(2)
Expenditure of the nature specified in section 40A
All assessees
58(4)
Expenditure in connection with winnings from lotteries, crossword puzzles, races, games, gambling or betting
All assessees

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